It’s only mid-April and we have already seen two jaw-dropping moments in the advertising industry so far this year. The first was Mark Zuckerberg’s Congressional appearance last week. Despite coming across as a bizarre mixture of a subdued Larry Grayson and an extra from One Flew Over the Cuckoo’s Nest, he mostly ran rings around his questioners. Nothing better illustrates the gulf between the speed of change in the digital world and the legislators’ lack of understanding concerning this change than last week’s – sometimes unintentionally humorous – exchanges.
At precisely the same time Sir Martin Sorrell was making plans to “retire” from WPP. All empires eventually fall, and WPP appears now to be no exception to this law. Sir Martin’s retirement is of course in part directly related to Mark Zuckerberg’s appearance, as it is the (up to now) unstoppable growth of Facebook and Google that has effectively torn up WPP’s (as well as the other marketing services holding companies’) business model.
In a more channel-specific area there is another business model about to be ripped up as well. It concerns one of the few media channels that has held up reasonably well while the digital giants from Silicon Valley have decimated large swathes of the advertising industry. Out of Home (OOH) has just about maintained its status as a £1bn a year revenue sector in the UK over the past five years. Whilst this has come at the cost of huge investment into digital screens, the OOH industry should be applauded for defending its position in the face of the online digital onslaught.
The key factor that is going to revolutionise the OOH industry is the imminent automation of its buying and selling processes. As pointed out in Liberum’s recently published financial report on the impending automation of the OOH industry, the benefits will be immediate to the three main sets of players in the OOH ecosystem – the holding companies, the media owners and crucially, the advertisers.
Liberum’s detailed analysis focuses mainly on the margin benefits to the two European OOH market leaders JC Decaux and Stroer, rightly identifying accrued labour cost savings as a key by-product of this automation. However, the benefits of automation also allow the holding companies to dramatically develop how they access the OOH medium.
Currently, most of the major OOH media owners are developing their own “application programming interfaces” (API’s) to parcel up their inventory for automated access. At the same time the OOH specialist buyers (Kinetic, Posterscope, Talon and Rapport) are all apparently in various stages of developing their own separate buy-side systems. The OOH specialists see their ability to directly purchase by individual media owner as a competitive advantage. In fact, these buy/sell developments only serve to create an industry with separate silos, which effectively segments the process into individual buys, rather than one collective process that encompasses every media owner.
For example, in the UK JC Decaux on its own – as a circa 35 per cent supplier – does not command enough market share to compel the specialist buyers to solely buy its inventory. Likewise, the OOH buyers do not individually control enough of the purchasing side of the equation to compel all the media owners to develop a unique selling API. That is why independent automation intermediaries such as Bitposter and BidStack have entered the OOH landscape. In a race to automate the industry it will be the company to first connect all the main selling and buying players simultaneously that becomes the standard. The first company to provide a Sabre-like infrastructure (like the one that transformed the US travel-booking industry) will win. A company like Bitposter will revolutionise the OOH industry, not all the individual players talking to each other in a Babel-like race to merely replicate their current trading model.
Cost savings will also accrue to the buying side. The OOH specialists will be required to move from a broadly commodity-based purchase of OOH to a more boutique-like and data-based approach. Fewer buyers will talk to fewer sellers. The cost of entry will also be reduced, enabling smaller advertisers to access the medium. Automation will also allow larger advertisers to access inventory directly, and will allow the “digital desks” in the holding companies to directly access OOH by bypassing their own specialist buyers. Data will also sit centre stage, rather than play a peripheral role in the purchase of OOH.
Automating the purchase of OOH will also prompt a wider debate about the role of Out of Home generally. Is it a high coverage mass medium, or is it a precisely targeted medium that allows for interaction on mobile devices with real time analytics? Can it be both in this new automated world?
Much money is currently being invested building competing systems – the industry clearly recognises that change is imminent. Quickly, a winner will emerge that enables the OOH medium to consolidate into one operating selling and buying system. Holding companies will investigate how to absorb the specialists into their other media agency structures, save millions of pounds in costs, and plan more data-centric campaigns. Despite all the talk from the holding companies about developing their own in-house tech solutions, they have a poor track record in successfully delivering.
My hunch is that an independent company that can see across the whole landscape will provide the ultimate solution, one that will utterly transform the way that OOH is used as an advertising vehicle. And, it will happen in a matter of months.